California gives tax vouchers to strip clubs

Strip clubs aren't only businesses taking part in program

In California’s fragile economy, every dollar counts. But a KCRA 3 investigation has revealed that hundreds of thousands of tax dollars are supporting strip clubs.

The support comes in the form of tax vouchers through California’s Enterprise Zone program, which has been around for more than 25 years with the goal of stimulating the economy.

But are strip clubs really where taxpayers' dollars should be going?

One of the venues in question is Gold Club Centerfolds, a Rancho Cordova strip club. Chief Executive Officer Mark Boyles is the recipient of those tax voucher certificates, authorized by the state of California -- giving him a $37,000 tax break for servers and waitresses at the club – and even the sales clerks at his XXX-rated video store.

"Wow!" said Boyles, after KCRA 3 notified him of the tax credit. "They don’t even make that much."

If Boyles sounds surprised by his tax windfall, it’s because he didn’t seek it out.

Instead, he was approached by tax consultants, who filed all the paperwork for him. And they get a piece of the pie.

"I get the money as a tax break," Boyles told KCRA 3. "The company gets the money to do the paperwork. The state of California gets little or nothing from me."

And Boyles isn’t complaining about receiving those tax credits from the state of California.

"I’m loving this deal," Boyles said. "But I don’t see where it necessarily makes sense for the taxpayers."

Critics such as the California Labor Federation condemn the Enterprise Zone program, calling it indefensible.

"Instead of creating good jobs that the state of California needs for economic recovery, it’s basically a tax giveaway for strip clubs," said Sara Flocks, of the federation.

It’s not just Gold Club Centerfolds, but also Déjà Vu Showgirls, the Rancho Cordova club that received at least 14 Enterprise Zone tax vouchers, according to documents obtained by KCRA 3 from the California Labor Federation.

Strip clubs aren't the only businesses taking part in the program. Beneficiaries also include big companies such as Costco, Federal Express and Campbell’s Soup, which, despite the help, is still shutting down its Sacramento facility.

"The Enterprise Zone works in funny ways," Gov. Jerry Brown told reporters while explaining his May Revise proposal at the Capitol.

Brown is trying to phase out the Enterprise Zone program.

"I don’t think strip clubs are what comes to people’s minds when it comes to economic development and job creation," said H.D. Palmer, a spokesman for the Department of Finance.

Strip clubs aside, independent studies from the Legislative Analyst’s Office and the Public Policy Institute of California found that enterprise zones cost California $750 million in lost tax revenue every year.

But businesses such as American River Packaging in Sacramento are supportive of the program.

The company makes corrugated boxes for food and beverage customers, including Blue Diamond almonds.

"The Enterprise Zone credit was a huge factor in us keeping the location here in California," said Tom Kandris, the CEO for American River Packaging.

The company elected to close its Nevada facility and instead, reinvest in Sacramento, thanks to the tax credits.

"The Enterprise Zone tax credits have allowed us to reinvest in the business," Kandris told KCRA 3. "And every dollar that we save, we put it through employment, through training and capitalization of our business. That makes it a little bit more competitive."

But the Enterprise Zone tax credits are losing their political support. And even some recipients are openly questioning who really benefits.

Just ask Mark Boyles.

"This is free money," he told KCRA 3.

Late Tuesday afternoon, Boyles' tax consultant sent KCRA 3 this statement from Uriel Carrazsco, president of Innovative Tax Solutions: "The state of California designates economically depressed geographic areas in the state as enterprise zones to encourage and stimulate economic growth and investment. Any taxpayer who owns or operates a business within the enterprise zone's geographic area is eligible and can receive tax credits provided they meet and maintain the requirements overseen by the state’s tax credit vouchering agents, California’s Housing and Community Development and the state’s taxing authority. We strongly support this program, which has been around for nearly 30 years as it has been instrumental in creating thousands of jobs in areas of high unemployment, and protecting many small and family run businesses from closing their doors."

The governor doesn’t agree, and plans to phase out enterprise zones over five years and replace them with a sales-tax exemption to buy manufacturing equipment.

So, under those rules, strip clubs would not be eligible for Enterprise Zone program credits, according to Brown's office.

On Wednesday, KCRA 3 will explore how California compares to other states when it comes to online access to government spending data.

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